Frac sand exec to slumping oil producers: You’re not going to drill your way out of this

By Collin Eaton | Houston Chronicle

Published 8:28 am, Monday, March 30, 2015

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Frac sand exec to slumping oil producers: You’re not going to drill your way out of this

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HOUSTON — The message that a scientific approach should trump the all-out wildcatting of the fading shale boom is echoing through more corridors of the energy industry. But oil producers may not want to hear it.

Frac sand suppliers say U.S. oil producers should use the lull in drilling as a chance to step back and study mountains of oilfield data to see which blends of water, sand and chemicals are best for blasting open shale rock, a process called hydraulic fracturing. Rapid-fire drilling — a practice that shale producers used during the boom to keep output rising over natural well depletion — often yielded bad, unproductive wells, as does hasty hydraulic fracturing, they say.

“There’s a high failure rate because we don’t do our homework,” said Jim Venditto, vice president of technical services at Trican Well Service, a fracturing firm that coats sand in material that makes it more buoyant and easier to pump into a well. He said producers have been talking more about finding ways to bolster well productivity, even as they send hundreds of drilling rigs to the sidelines.

“You’re not going to be able to drill your way out of this,” Venditto said. “Every so often, we have to reinvent the oil industry again.”

The CEO of proppant provider Preferred Sands said his firm last year launched a free iPhone app called NavPort that tracks hundreds of thousands of wells in North America and provides data on aspects of fracturing jobs, including the types and amounts of proppants used.

“Our market has been prolific, but it’s been a victim of its own success,” said Michael O’Neill, CEO of Radnor, Pennsylvania-based Preferred Sands, in an interview with Fuelfix. He said his firm had been developing the Navport software for four years because oil companies have had to live with obsolete data. “It’s going to have to become very scientific. When you have $50 oil, everything matters.”

In a similar vein, oilfield service giants Baker Hughes and Halliburton have recently put their weight behind efforts to better understand shale reservoirs and ways to extract oil out of them. They’ve advocated diagnosing old wells and stimulating them again through “re-fracturing,” a second round of hydraulic fracturing. It’s about a quarter of the cost to drill a new well, and in a few cases, it has led to significant production growth from aging wells, the firms say.

The oil industry has only re-fractured about 2 percent of the 50,000 wells that went through one round of fracturing in North America over the past few years. But O’Neill said the trend has grown substantially and is bound to keep expanding.

“I don’t think people will be able to afford not to do it,” he said.

But at the moment, putting theory into practice appears to be difficult amid low oil prices. Demand for frac sand is set to fall 14 percent this year as drilling declines, said Samir Nangia, a principal with PacWest Consulting Partners, an IHS company.

Some firms could get hit harder than others because oil companies are snapping up more local sand, saving money on transporting higher-quality sand on rail cars, Nangia said.

There have been more converts to the philosophy — touted by Texas oil companies EOG Resources and Pioneer Natural Resources — that pumping more sand into an oil well can bring up more oil. They generally pack 20 percent more sand into a well, a boon for fracturing sand firms. But some producers have backed away from that as oil prices have fallen, largely because it’s costly to add more pressure pumping, Nangia said.

“When oil was $100 a barrel, a lot more people were interested in experimenting,” he said. “Now they’re more focused on costs.”

According to data collected by PacWest, the 30-percent decline in exploration and production spending in North America will likely mean the use of fracturing sand among oil companies will stay flat this year, a “conservative assumption.” The firm says pricing for new minegate sand contracts has fallen 20 percent, and that fine-grade sands will likely feel the most pressure in 2015.